Wednesday, February 28, 2007

Remake of "Living off Abdul's Job"

A Saudi female physician is being forced to divorce her husband, in part so her family can arrange her marriage to a partner of their choosing, and in part because they are dependent on her financial support.

An inconvenient electric bill

Buying "green power" is just rearranging the deck chairs, buying power that would have been in the energy mix anyway. It's like buying the green M&M's when no one else cares what the color of their M&M's are.

And what about buying carbon offsets? Marginal Revolution shows it can easily be the case that you make pollution worse -- here and here.

Abu Dhabi: The Environment Agency-Abu Dhabi (EAD) yesterday launched a pilot project to examine and evaluate water levels of an estimated 100,000 wells in the emirate. The project was launched with commissioning from the German-based Dornier Consortium to register and survey from 10,000 to 15,000 wells in Al Ain and Liwa under a Dh2.2million agreement signed yesterday....According to Al Mansouri [Majid Al Mansouri, EAD Secretary General], the underground water management project aims at bringing all the activities of well digging, drilling or pumping under regulation, and also curbing illegal digging and drilling of wells in the emirate. "The project was launched on the instruction and approval of the Executive Council to preserve underground aquifers and protect them from depletion. The strategy was necessary as all these wells are unregistered, have no data and had been dug or drilled in the absence of regulatory control," said Al Mansouri.

The work on the initial project began last month. The rest of the emirate's wells are expected to be registered and surveyed by the end of 2010.

Markets are generally a good way to organize economic activity. Indeed, for most products it is best for there to be an absence of regulatory control.

Sometimes markets fail, as in this case. The reason is that no one owns an aquifer. This results in a race to exploit this scarce resource. Regulatory control is warranted. It is good that Abu Dhabi is tightening regulations and even better that it is working towards a capability of enforcing the regulations it has.

What price a free market? :: Gulf News opinion

Ever since the formation of the United Arab Emirates as a federation, the belief that it is a free market economy and a tax-free society has been perpetuated. The message spread abroad, enticing investors and industrialists to its shores. Because of the faith in a liberal economy, unhindered by intrusive bureaucracy or burdened by oppressive taxation, people found the various freedoms available and enjoyed a complete contrast to that experienced elsewhere. This only served to increase the popularity of the nation.

As you will see, he's setting us up with a phony straw man -- the free-market economy. It's not the belief in a free market that's made the UAE successful, but a faithfulness to limited and judicious intervention in markets. Not always according to my taste, but certainly better than many governments around the world.

As commerce progressed and the population increased, so did the burden upon the state's coffers for services which, in the past, were taken for granted as being funded by the government. But the government suddenly found itself in an invidious situation: an ever-increasing expenditure due to increasing population and escalating prices affecting everyone.

Not clear this is true on a per capita basis. As the economy has grown the costs of government services have grown, but so have the government/ruler revenues.

On the one hand a move could be made to allow private enterprise to take up responsibilities the government had shouldered in the past - water, electricity, health services and so on. But on the other hand, to ensure prices did not spiral out of control, intervention measures were needed to avoid widespread disenchantment. Yet to intervene in pricing structures would mean a contradiction of the principles of a free market economy, which may deter investors from establishing businesses in the UAE. It is a predicament that still faces the government at both federal and local level.

"Spiral out of control" is a common but silly expression. And what's the big deal of contradiction of principles of free market principles -- you've already done that by having government subsidized services. There's no "predicament." As far as the merits of privatizing services like electricity and water, we know that these are prone to evolving into monopoly market structures (particularly in a small market like the UAE) and such structures need some government regulation.

Private finance

On the issue of privatisation, the governments are moving towards bringing private finance into established services and utilities sectors through share flotations or seeking joint venture partnerships. Whether a complete privatisation or partial, as with a joint venture, it augurs well in such an economy and for those who advocate this system of governance. Where it can fail is for it to make the wealthy, wealthier, and those unable to afford participation in the benefits, less well off. For in allowing prices to find their own level - a belief held by all capitalists - that level, for one reason or another, frequently becomes one which can only be attained by a few.

When many economists talk of a free market economy, they overlook one simple fact. Namely, that there is no such thing. A completely free market is a theoretical form of market economy whereby transactions are made freely, based on an agreement of the price. There is no state intervention through taxation, subsidy or regulation.

Economists are well aware that any change in government regulation creates winners and losers. And we are well aware that economies without state intervention are nonexistent. So what's the point being made?

The term "free market" applies to an array of financial exchanges in commerce. Each exchange being a voluntary agreement between parties trading in goods or services. That is only the extent to which a free market exists, as there will always be government intervention through taxation, price controls and restrictions, possibly even preventing new competitors from entering a market. So a free market is used to describe a political or ideological viewpoint on policy and is not a recognised field within economics.

Consequently, the UAE does not practise a free market economy, nor could it ever do so, as it is likely the economy will become uncontrollable and everything affiliated to it, unmanageable. Instead, in an effort to curb excesses often experienced in certain sectors of the market, the government, federal or local, has found it necessary to intervene and restrict price increases deemed unreasonable.

He's made a presumption that without basis that a free market would become "uncontrollable" and "unmanageable." What does that even mean? On what evidence or logic? Economists believe (yes, I said believe) that markets are generally a good way to organize markets, but they also believe that there are limited circumstances where government intervention is necessary.

Most dramatic

Perhaps the most dramatic of these interventions was that of reining in the increases in house rents. Possibly the only weakness there was the directives were local, not federal, so losing an opportunity to standardise on a suitable law, or level, throughout the country.

Price controls are not a good idea. The Soviet Union and the destructive effects of rent control in New York City should be evidence enough that economists have the theory correct on this one.

There have been other, sometimes contentious, interventions to restrain traders from exploiting a buyers' market. In recent times, directives allowed merchants to ignore exclusive agency agreements on specific foodstuffs, so parallel imports can be obtained at hopefully lower prices. But without effective monitoring or control, it is difficult to determine if it was successful; certainly the public saw no noticeable difference. Of course, this circumvention is only a precursor to that eventuality as such agreements will be against the terms of the World Trade Organisation, of which the UAE is now a member.

The author does not see a plain fact - exclusive agency is created by the government. It's creation of monopoly by government. Economists have long argued that the UAE should end the practice.

With the cost of living in the UAE increasing exponentially, the government's temptation to interfere in even more areas of business is there. Not only will it seek ways to curb unnecessary increases, but to ensure a balanced budget, one that is not entirely reliant on an oil economy. In this regard, it is tempting to look to taxation as a way to boost revenue.

There are already some charges made upon the people, like customs duties or local tariffs on various services and alcohol, tobacco and petroleum products. But as yet there are no laws which allow for the collection of taxes, as is widely practised elsewhere.

There is talk of Value Added Tax being introduced to replace Customs Duty and, if done, it will have an immediate effect on the cost of living and to commerce in general. Not only will companies have to keep proper books of account, maybe for the first time ever, but also there will be personnel employed by the private sector as tax collectors for the government - something that is quite common in taxed societies.

The prospect of such inevitable dramatic changes in the economy, and therefore society, must be very intimidating for those officials concerned with maintaining the dynamic and attractive image of the UAE.

Sunday, February 25, 2007

Iran sits on one-tenth of the world's known oil supplies but is using so much energy these days it may start rationing gasoline as soon as next month....As the country has grown wealthier selling oil and gas, Iranians have themselves become large consumers of energy. Government subsidies, which make energy nearly free to consumers and businesses, stoke the demand further. At the same time, a combination of Western sanctions and Iranian policies has discouraged foreign investment in oil fields, causing production to stagnate. The result: Iran's oil exports could dry up in as little as a decade, according to some who have studied the situation. That's a looming disaster for Iran, which derives about 85% of its export income from the sale of oil....Once seen as little more than a giant petrol station to the world, Middle Eastern oil suppliers are now becoming some of the largest consumers of energy anywhere. They are attempting to diversify their economies, often by encouraging energy-thirsty industries such as refineries and processing of metals like aluminum. Meanwhile, record numbers of young people are growing up and establishing households. Already, the Middle East and North Africa's population of some 300 million consumes almost as much oil as 1.2 billion Chinese.

Iran, where a huge population bulge is reaching adulthood, is confronting the export crunch earlier and more acutely than others. Iran already consumes more oil than all but 15 other countries on earth, according to the International Energy Agency, which monitors the world energy market. In 1995, Iranians used the equivalent of 34% of the oil they pumped from the ground, exporting the rest. Last year they used 40%....Iran will also have to keep ahead of Iranians' own thirst for gas and oil, which is growing at a double-digit pace. So far, it is losing the race.

Much of the problem is waste. A recent study by a parliamentary committee said that 18.5% of the country's electricity is lost before it even reaches consumers, due to rickety infrastructure, corruption and mismanagement.

... subsidies make energy practically free in Iran, discouraging any serious energy conservation. Gasoline, for example, costs about 40 cents a gallon at the pump. That's encouraged an explosion of use, as Iranians add new cars while continuing to use fuel-guzzling old models. It has also encouraged a brisk smuggling trade as Iranians buy millions of gallons of fuel at the subsidized price and truck them into neighboring Pakistan, Turkey, Afghanistan and Iraq for sale at market rates.

McKinsey interviews Minister of the Economy Lubna Al Qasimi

The Quarterly: Many outsiders see limits on foreign ownership and the UAE's agency law as outmoded and unnecessarily restrictive. What plans do you have to change this? (Under the current system all foreign companies producing and selling goods, services, or both in the UAE must do so through a UAE-owned partner.)

Sheikha Lubna: What we've done is to launch a study looking at sectors where we believe the contribution comes solely from foreigners, or at least very little from locals. So with that in mind I think parts of the law might undergo change. Depending on the sector and the Emirate, foreigners might be allowed to hold controlling shares in these ventures. Having the agency law, however, does not mean that we have excluded all foreigners from majority ownership. The whole idea of creating the 23 free zones and special economic zones throughout the UAE was to offer 100 percent foreign ownership....The Quarterly: How concerned are you about the unemployment rate among nationals and the extent to which foreigners dominate the labor market?

Sheikha Lubna: The UAE is, perhaps, the only country in the world where foreigners dominate the private sector, both as employers and employees. In almost all countries that allow immigration, the rule is that foreigners are only allowed to take up jobs when suitably qualified nationals are not available.

Expatriate workers will obviously continue to play a vital role in our economy, but it is unacceptable that 22,000 nationals are either unemployed or underemployed. The private sector therefore cannot be left unregulated. Hence the Emiratization program, which establishes a quota system for nationals in certain sectors. The strategy will only succeed in the medium to long term, though, if adequate educational and training programs are geared toward creating skills among nationals to suit the demands of the private sector.......The Quarterly: What are the major risks for the UAE over the next three to five years?

Sheikha Lubna: Number one is obviously the political stability of the region. Anything that happens to one of our neighbors has implications for us. We are all investors in and exporters to Lebanon, for example, so when it was brought to the ground, the efforts of the past ten years were completely demolished.

I've talked about labor in another context, but when you have such a mix of people they sometimes bring their political problems with them. So far the UAE has been very good at managing these differences, but that doesn't mean we should just take it for granted.

I don't think the price of oil will threaten the development of the UAE economy—the inflow of FDI shows it is working—but a more concerning issue is inflation triggered by the high oil prices and booming economy.

Price controls spread on bread :: Khaleej Times

The Ajman Municipality has ordered that all bakery owners in the emirate, who hiked the price of bread recently without its prior approval, should revert back to the earlier retail price.

The Ajman Municipality has also intensified its market price control campaign following the recent price hike of ‘Samoon’ bread in particular, a popular bread variety consumed by a large majority of Arab nationals.

The bakeries have raised the price of samoon bread and other bakery items from 25 fils to a dirham. Earlier, a pack of six samoon bread was sold at 75 fils, but now the price at most bakeries ranges from Dh1.25 to Dh1.50 per pack.

Bakery owners say they have raised the prices of their products, including samoon bread, due to a hike in the price of various ingredients such as flour, wheat, milk, butter, etc. A public notice regarding this hike in price was recently issued by most bakeries in Arabic, English and Urdu....Meanwhile, Sawsan Al Tayeb, a housewife said she has noticed that those which have not increased their price have reduced the size of their loaves of bread, or reduced the number of pieces per pack.

Since there are no shortages reported, and the increase in price (or, equivalently, decrease in package weight) is widespread, it appears the municipalities have not been successful in enforcing the controls.

Talk, no action. In this case that's a good thing. What is not a good thing is the inflationary environment in the UAE, particularly because prices are growing faster than wages. Those are not problems, though, that are solved by price controls.

Nixon and the US Department of Labor

Henle, who dedicated his career to exploring economic issues from the perspective of the average worker, found himself in the news when President Nixon charged that a "Jewish cabal" at the Bureau of Labor Statistics was out to get him. The "cabal" was composed of two people: Henle and Harold Goldstein, director of current employment analysis at the bureau. Nixon believed the two bureau officials were distorting unemployment data to cast his administration in an unfavorable light. He ordered Frederic Malek, his White House personnel chief, to compile figures on the number of Jews among top labor officials. Two months after Malek compiled the data, Henle and Goldstein were assigned to less visible positions within the Labor Department.

Saturday, February 24, 2007

Supply and demand in the news

And, as I tell my students, usually not in the business section.

Item 1: The UAE must tighten laws on recruiters and lawyers who fly into the emirates to poach nurses, an immigration consultant has warned. ... An official from the Ministry of Health complained that it loses 10 per cent of its nurses every year. "It's not so much the loss, but the time spent in training the new staff," he complained. The UAE recently hiked salaries of nurses, but doctors and medical staff say it will not work in holding the nurses back here. "The money is a band aid," said MacDonald. She said there are other reasons besides the huge difference in salaries here and in Western nations. ... Health workers also blame the rise in living cost and lack of challenges here. ... Marianne Gerstner, chief nursing officer at the Medcare Hospital, said it was getting more difficult to recruit experienced and qualified nurses for her hospital. ... "I have seen many who spend a few years here and use their time here as a stepping stone to progress in their careers."

Item 2: Ras Al Khaimah: Bakeries have ignored orders from the municipality not to raise bread prices, saying that prices of wheat and diesel fuel have shot up. The price of a large loaf of bread has jumped from 50 to 75 fils. "Copies of the official notice were delivered in person to each bakery with clear instructions to stick to the old price," said Mubarak Ali Al Shamsi, Director of RAK Municipality. He said a market study showed that there was no excuse for the bakeries to increase prices of bread. The official said the study was done after complaints from the public. "Bread is a basic commodity and the municipality will not allow this," he said. ... Sayed Ahmad, in charge of a bakery, said he earlier bought a 50 kilo bag of wheat for Dh40, but retailers recently increased the price to Dh70. "The 25 fils increase [in price] is not much for the customers," he claimed and said that a big loaf now weighs 220 grams as opposed to 150 grams earlier. "We cannot survive on the old prices," he said. A senior official in the Department of Economic Development said bakeries now also have to pay commercial registration fees of Dh400. He said expenses of bakeries have increased.

Food producers and economists say the measures announced late Thursday night, which include removing three zeroes from the denomination of Venezuela’s currency, are likely to backfire and generate even more acute shortages and higher prices for consumers. Inflation climbed to an annual rate of 18.4 percent a year in January, the highest in Latin America and far above the official target of 10 to 12 percent....For now, Venezuela remains far from any nightmarish economic meltdown. The country, which has the largest conventional oil reserves outside the Middle East, is still enjoying a revenue windfall from historically high oil prices, resulting in a surge in consumer spending and lavish government financing for an array of social welfare and infrastructure programs. Dollar reserves at the central bank total more than $35 billion....Entering a supermarket here is a bizarre experience. Shelves are fully stocked with Scotch whiskey, Argentine wines and imported cheeses like brie and Camembert, but basic staples like black beans and desirable cuts of beef like sirloin are often absent. Customers, even those in the government’s own Mercal chain of subsidized grocery stores, are left with choices like pork neck bones, rabbit and unusual cuts of lamb.

With shoppers limited to just two large packages of sugar, a black market in sugar has developed among street vendors in parts of Caracas. “This country is going to turn into Cuba, or Chávez will have to give in,” said Cándida de Gómez, 54, a shopper at a private supermarket in Los Palos Grandes, a district in the capital....Mr. Chávez also said he would raise subsidies for state-owned grocery stores. Economists say such subsidies, together with hefty loans to farmers, have allowed the price controls to function relatively well until recent weeks.

But recent expropriations of farms and ranches, part of Mr. Chávez’s effort to empower state-financed cooperatives, have also weighed on domestic food production as the new managers retool operations....

“There seems to be a basic misunderstanding in Chávez’s government of what is driving scarcity and inflation,” said Francisco Rodríguez, a former chief economist at Venezuela’s National Assembly who teaches at Wesleyan University.

But this is great for the teaching of economics. A government so awash in oil revenue can keep this up for a long time creating plenty of fodder for classroom discussion of shortages, prices ceilings, subsidies, capital flight, yadda yadda yadda.

Women will be paid to donate their eggs for scientific research in a landmark decision that will prompt a fierce backlash from leading figures in the medical world.

The Human Fertility and Embryology Authority (HFEA), the government regulator of this highly sensitive area, is expected to approve the policy when it meets on Wednesday. At present, clinics are not allowed to accept eggs donated for scientific research unless they are a byproduct of either IVF treatment or sterilisation. Campaigners for change say that this has led to a chronic shortage of eggs for scientific use....Anyone agreeing to donate will have to show that they are acting for altruistic reasons, for example because they have a close relative suffering with one of the conditions scientists are trying to develop new treatments for with the aid of human eggs.

Women who have the right to an abortion should have the right to sell eggs. What would be the outcry if the market was for fetuses?

Friday, February 16, 2007

On the Origins of the Underachievement of Nations (and Individuals)

The values that might impact dynamism are of special interest here. Relatively few in the Big Three report that they want jobs offering opportunities for achievement (42% in France and 54% in Italy, versus an average of 73% in Canada and the U.S.); chances for initiative in the job (38% in France and 47% in Italy, as against an average of 53% in Canada and the U.S.), and even interesting work (59% in France and Italy, versus an average of 71.5% in Canada and the U.K). Relatively few are keen on taking responsibility, or freedom (57% in Germany and 58% in France as against 61% in the U.S. and 65% in Canada), and relatively few are happy about taking orders (Italy 1.03, of a possible 3.0, and Germany 1.13, as against 1.34 in Canada and 1.47 in the U.S.)....Lastly, there a strain of anti-commercialism. "A German would rather say he had inherited his fortune than say he made it himself," the economist Hans-Werner Sinn once remarked to me.

Thursday, February 15, 2007

I have a vision: A vision that sets the stage for the creation of generation two of Saudi Arabia’s Dynamic Leaders of Tomorrow (SADLOT). It is a vision that calls for a top down, and a bottom up approach to youth integration....If each chamber of commerce was mandated by policy to establish a “Youth Economic Council” as the formal economic voice of our nation’s SADLOT, then I am sure that the fresh young blood will not be lacking in providing us with new ideas for resolving old issues of unemployment, economic diversification, and entrepreneurial support.

Lopes said holidays that carry family attendance expectations can be especially volatile for the simple reason that someone who is cheating must try to be in two places.

"And the player can't be two places at once," he said. "Somebody's going to get the short end of the stick."...Lopes, whose investigators were scheduled to work seven suspected infidelity cases yesterday, said the increase in Valentine's-related business traditionally continues past the holiday.

"Women find receipts for an item they thought they were going to get for Valentine's Day and never got it," he said.

Perhaps this is why the church invented St. Valentines Day - to make it easier to catch cheaters, and deter infidelity.

Wednesday, February 14, 2007

Dubai Government seeks to borrow at least $10bn by 2009, as the emirate’s ambitious expansion plans begin to outpace revenues from its oil, which is expected to run dry within 20 years.

Such borrowing would be used to fund the road, rail, power and water desalination infrastructure necessary to achieve Dubai's ambitious plans for economic growth, which the emirate's ruler forecasts will hit 11% per year until 2015.

This will require borrowing that will “go into double-digit billions” by 2009, according to Nasser Akil Abbas, treasury director at Dubai government’s finance department, quoted by Bloomberg....Dubai is seeking a credit rating in order to achieve this, and its Department of Finance is drawing up a strategy with advice from JP Morgan and Swiss bank UBS, according to a senior official....It was previously reported that Dubai's government planned to issue $4 billion worth of dollar-denominated bonds in the international market to fund infrastructure projects, according to a Dubai official last year.

In the meantime, Dubai continues to invest billions overseas.

Let's put it this way. If you are buying real estate in Dubai, make sure it doesn't make your portfolio undiversified.

Tuesday, February 13, 2007

Golden oldie from the Emirates Economist - Valentines Day

Celebration of the Islamic New Year or the Prophet Mohammad's birthday, common in other Muslim countries, is frowned upon in Saudi Arabia.

Valentine's Day, or the 'Feast of Love' in Arabic, is beyond the pale in a country where women must cover themselves from head to toe in public and be accompanied by a male guardian.

'For the last week, we've had no red in the shop,' said Ahmed, a flower shop manager. 'You can't even have red cards.'

Despite the prohibition, demand for the banned roses has been strong and unofficial business was booming, Ahmed said.

'Wait 10 minutes,' he told one customer as an assistant slipped into the shadows to collect a bouquet of crimson flowers. At 10 riyals ($2.70) each they were double the usual price. 'They would put us in prison for this,' he smiled.

Shortly after I first arrived in the United Arab Emirates I visited the Dubai City Centre mall. What I saw shattered my expectations. I knew that the UAE was not the UAR (United Arab Republic) and I knew the UAE was not Saudi Arabia. (Both are frighteningly common misconceptions of Westerners.) What I was not prepared for on my visit to the mall was a full blown marketing of Valentines Day, and buyers of all kinds engaging in Valentines purchases.

Nationals are a minority in the UAE, as are Arabs. Muslims are in the majority. But there are many Westerners working here as well who brought with them the tradition of Valentines, a celebration of human love, especially of the devotion between spouses. So it is easy, in hindsight to see how Valentines was introduced and transmitted from one culture to another. One has to wonder whether cultural crowding out is a good thing, although you can't condone the Saudi approach of policing Valentines either.

There is a question of where the recent Saudi local elections (for men only) will lead. But even in Saudi Arabia it seems clear that men and women are voting with their pocketbooks in favor of Valentines. And to challenge authority to do so. That's a political act.

One more thing about the marketing of Valentines Day. It is used to be Saint Valentines Day (originating like most Christmas holidays to displace a pagan holiday). Many young Americans may not know that until they've studied the Saint Valentines Day Massacre in 20th century U.S. history. Most stores in the US have found it profitable to replace "Merry Christmas" with "Happy Holidays" in their Christmas ads. (Some Christians have used this as a pretext to pump up outrage that secular values are crowding out the sacred.) I suspect the saint was dropped from Valentines for the same reason -- it converts the celebration into a universal celebration, and broadens its market appeal.

Monday, February 12, 2007

The UAE leadership regards democracy as an indispensable tool for building the foundation of good governance, according to a study, titled ‘United Arab Emirates and Political Participation’, published by the Information Affairs Office of Shaikh Sultan bin Zayed Al Nahyan, Deputy Prime Minister.

I’ll admit, the Stern Review on Traffic Jams doesn’t sound like the sort of thing to keep you awake at night. Traffic jams are less dramatic than catastrophic climate change, just as being mugged is less dramatic than being shot.

I realise it seems ridiculous to compare traffic jams to climate change, but I am not sure why. If climate change ever begins to have the same impact on our lives that congestion does today, it will be a dark day indeed. Think about the delays; the uncertainties; think about the lengths big-city dwellers have to go to in an effort to avoid traffic. Then think about how severely the climate would need to change before it had the same effect on your daily routine.

The new “happiness economists”, who are almost as fashionable as those who study climate change, have concluded that the way most people feel during their commute is the worst they feel all day. It would be worth a lot to escape that feeling. Of course, it would be worth a lot if we could do something about climate change too....I am just puzzled as to why an environmental problem that we fear will eventually become serious gets so much more attention than an environmental problem that we know for sure is serious right now.

FOR the small group of economists and policy wonks interested in applying supply-and-demand theories to the thorny problems of gridlock and ever-longer commutes, the $2.9 trillion fiscal 2008 budget released by President Bush on Monday contained some excellent news: $130 million in grants to finance construction of so-called congestion pricing systems....congestion pricing was born and bred in New York City. William Vickrey, the longtime Columbia University economist and 1996 Nobel laureate, is viewed as the father of the concept....Since February 2003, when London introduced a system that charged a fee to motorists entering the central city on weekdays, “congestion has been reduced noticeably,” said Edward L. Glaeser, professor of economics at Harvard. “People are using the roads less, and there have been remarkable upticks in speeds.”

Beyond that, congestion pricing holds out the possibility of harnessing people’s innate economic rationality and self-interest in order to promote a series of public goods. Every time a driver turns onto the Henry Hudson Parkway, she slows down the travel speed of all the other drivers, imposing a cost — or, as economists say, a negative externality — on countless fellow citizens....“People are willing to pay for that time savings, and the price can be adjusted in such a way that you keep the lanes pretty full but don’t become overloaded,” said Kenneth Small, research professor of economics at the University of California, Irvine. “You can almost always drive in the express lanes without slowing down, free flow.” In San Diego, the price of using the H.O.T. lanes can change every six minutes.The greater willingness of drivers and policy makers to consider congestion pricing is a recognition that building more roads will never be a solution to traffic problems....In New York, many elected officials argued that charging fees to drivers would be a burden for poor and middle-income people. Professor Glaeser disagrees. “The greatest beneficiaries of reduced congestion on roads in New York would be people who ride buses to get to and from work, who would find their commutes shortened [because fewer cars will be on the street].”

Recent posts by Muscati

Taking it to the street? Economists call it path dependence. Muscati reports: "The hotel closed down three weeks ago for 10 months' renovation in which the whole hotel will be made over. However from the bumper to bumper traffic of cars entering and exiting the hotel's parking lot you'd be excused if you thought it was still open. The reason all these cars are heading to the Sheraton? Lined up on the sidewalk at the hotel's exit is a long line of Chinese prostitutes. ... Apparently, ground central for these Chinese pros used to be the night club downstairs in the hotel. Now that the hotel has closed down they've taken their business outside. It's not like the police are doing anything about it."

More road-charging debate pledged :: BBC

This is a debate we should be having in Dubai. As long as roads are free they are going to congested, we will spend tremendous amounts on the road for simple tasks like getting groceries, going to the doctor, or going out for an evening. And then you have all the additional heat and pollution created by car idling in traffic jams.

A BBC News trial of "pay as you drive" motoring suggests that some motorists with high mileage could face bills of more than £2,000 a year if the government presses ahead with its controversial road charging scheme....The news team has been monitoring the driving habits of four motorists from the West Midlands for a month to get an idea of the size of bills they could face....[Our car commuter] says that if the roads became less congested as a result of road charging, he might be able to cut 20 minutes off his journey and spend more time either with his family or actually working.

Each of the vehicles in our trial had a satellite navigation system installed which transmitted data to Television Centre 24 hours a day, 7 days a week, giving a precise minute-by-minute location of which road the vehicle was on and either the speed it was travelling - or whether it was parked up with the ignition off.

The data was processed according to a road charging model drawn up by transport expert Professor Stephen Glaister of Imperial College, London.

Sunday, February 11, 2007

A recent study by the economists Alberto Alesina of Harvard and Enrico Spolaore of Tufts demonstrates that the bigger the nation, the harder it becomes for the government to meet the needs of its dispersed population. Regions that don’t feel well served by the government’s distribution of goods and services then have an incentive to take independent action, the economists note....If the scale of a country renders it unmanageable, there are two possible responses. One is a breakup of the nation; the other is a radical decentralization of power. More than half of the world’s 200 nations formed as breakaways after 1946. These days, many nations — including Brazil, Britain, Canada, China, France, Italy and Spain, just to name a few — are devolving power to regions in various ways....California’s governor has also put his finger on a little discussed flaw in America’s constitutional formula. The United States is almost certainly too big to be a meaningful democracy. What does “participatory democracy” mean in a continent? Sooner or later, a profound, probably regional, decentralization of the federal system may be all but inevitable.

Perhaps I'm missing something, but where's the flaw in America's constitutional formula? It's constitutional formula has taken this far largely because it is decentralized -- states rights. It's not a flaw, it's a feature.

President Hugo Chavez's administration blames the food supply problems on unscrupulous speculators, but industry officials say government price controls that strangle profits are responsible. Authorities on Wednesday raided a warehouse in Caracas and seized seven tons of sugar hoarded by vendors unwilling to market the inventory at the official price....Shortages have sporadically appeared with items from milk to coffee since early 2003, when Chavez began regulating prices for 400 basic products as a way to counter inflation and protect the poor.

Yet inflation has soared to an accumulated 78 percent in the last four years in an economy awash in petrodollars, and food prices have increased particularly swiftly, creating a widening discrepancy between official prices and the true cost of getting goods to market in Venezuela.

"Shortages have increased significantly as well as violations of price controls," Central Bank director Domingo Maza Zavala told the Venezuelan broadcaster Union Radio on Thursday. "The difference between real market prices and controlled prices is very high."...Mr. Mugabe, who blames a Western plot against him for Zimbabwe’s problems, has rejected all calls for economic reform. The government refuses to devalue Zimbabwe’s dollar, which fetches only 5 to 10 percent of its official value on the thriving black market. As a result, foreign exchange to buy crucial imported goods like spare parts and fertilizer has effectively dried up.

To discover the root of these problems, Mugabe and Chavez need to take a look in the mirror.

UDATE: Be careful what you wish for. A commenter reports an unintended consequence of the "Dubai's laudable rent cap." Landlords are going condo and selling units out from under the feet of renters. (Giving the renters first option, of course.) I have not seen confirmation of this report in the mainstream. media.

Friday, February 09, 2007

The growing embryo market :: The Times

Wendy Duncan and her husband Brian are white. Nineteen months ago, the Lincolnshire housewife gave birth to a beautiful, healthy, Indian daughter.

Freya, brown-skinned and dark-eyed, is not a medical miracle after a long and fruitless quest through IVF and adoption, but the product of a booming industry in India that is offering embryos for adoption.

India is fast cornering what is forecast as a £3 billion-a-year market in “reproductive tourism”. It has highly trained, English-speaking doctors and medical procedures that cost a third of the price charged in Europe...Being white and already having a mixed-race child (from Mrs Duncan’s previous relationship) meant that they failed the criteria for a normal adoption.

IVF was unsuccessful and expensive for a family relying on Mr Duncan’s income as a lorry driver. The older Mrs Duncan got, the less the chance there was of any fertility treatment working.

Their options were running out until they stumbled upon a website for the Bombay clinic. It was an easy choice.

“Last time, I knew I was pregnant within three days. It was quick - just like having a smear,” she said. “Couples wait years in the UK for egg donation . . . So when we heard about this, we thought ‘Why not?’ If the standards were the same [as British ones], then we didn’t have a problem. And they were. In fact, we were able to get a lot more information. We weren’t just a number.”

The Duncans had no qualms about bearing a child of a different race. They are Freya’s natural birth parents and legal guardians in British law.

“To us colour is not an issue. I already have a mixed-race daughter, whose father is Arab, from a previous relationship,” Mrs Duncan said.

Wow. Better quality, lower price and faster service. And no barriers - in reference to the rules against mixed-race adoption.

Putting my on my normative hat, I have to say what is wrong with mixed race adoption? Indeed, wouldn't it be better if Mrs Duncan had been allowed to exercise her preference to adopt a mixed-race child in the UK, rather buying an embryo in India?

Government employees to receive 20% pay increase :: Gulf News

I presume the pay increase is for two reasons: (1) to compensate for inflation which is running in the double digits, and (2) to share the windfall of higher oil prices.

A problem created is that this makes it ever more difficult to attract nationals into the private sector where wages currently are not keeping up with inflation.

The wage increase is retroactive to the start of 2007. The practice of giving retroactive pay increases poses a further barrier to attracting nationals to the private sector -- the private sector does not follow this practice.

The government has said it is concerned that so few nationals work in the private sector. Suggestion to the government: Allocate more welfare benefits through direct cash grants to nationals rather than through paying greater-than-market rates for working in the government sector.

Changes in labor law mooted :: Gulf News

"A worker may not be forced to buy any food or commodities from certain shops or produced by the employer," the draft states....The draft, for the first time, determines a retirement age of 60 years and authorises employers to downsize for emiratisation, economic or structural reasons.

Is that mandatory retirement; will some sectors be exempted? And was it not legal to downsize in the past?

The end of service gratuity, currently 21 days' basic salary for each year of the first five years of service, will be 15 days if the draft is approved.

The rule on the 30 days' salary for each additional year will remain unchanged. However, this article will not be retrospective.

Tuesday, February 06, 2007

What do neuroeconomists think of the insula?

According to neuroscientists who study it, the insula is a long-neglected brain region that has emerged as crucial to understanding what it feels like to be human.

They say it is the wellspring of social emotions, things like lust and disgust, pride and humiliation, guilt and atonement. It helps give rise to moral intuition, empathy and the capacity to respond emotionally to music.

Its anatomy and evolution shed light on the profound differences between humans and other animals.

The insula also reads body states like hunger and craving and helps push people into reaching for the next sandwich, cigarette or line of cocaine. So insula research offers new ways to think about treating drug addiction, alcoholism, anxiety and eating disorders. ...The bottom line, according to Dr. Paulus and others, is that mind and body are integrated in the insula. It provides unprecedented insight into the anatomy of human emotions. ...The insula itself is a sort of receiving zone that reads the physiological state of the entire body and then generates subjective feelings that can bring about actions, like eating, that keep the body in a state of internal balance. Information from the insula is relayed to other brain structures that appear to be involved in decision making....... the insula was “assigned to the brain’s netherworld,” said John Allman, a neuroscientist at the California Institute of Technology. It was mistakenly defined as a primitive part of the brain involved only in functions like eating and sex. Ambitious scientists studied higher, more rational parts of the brain, he said.

The insula emerged from darkness a decade ago when Antonio Damasio, a neuroscientist now at the University of Southern California, developed the so-called somatic marker hypothesis, the idea that rational thinking cannot be separated from feelings and emotions. The insula, he said, plays a starring role.

Shopping at the Co-op

Went shopping tonight at the Co-op grocery. Not sure what makes it co-op exactly.

Bought a bar of soap. I'm adventurous and the package in large letters "Block White PAPAYA". I figured it was a bar of white soap with papaya in it. I like papaya and I like Ivory soap. So I bought it. Looking at it now I see that there's a faint &between Block and White. I also it says in smaller print "whitening soap." This product is popular here, but I don't need that's for sure.

Noticed a product in the story called Moonys. They were disposable diapers. Didn't see any Crust (no sic) toothpaste this time.

Disney World coming to Bahrain? :: Mahmood's Den

No way to run a business :: Gulf News

Not paying workers on time is a chronic problem in the UAE. There's simply no excuse for it. And it raises basic questions of the competence of businesses - large businesses - that cannot meet a payroll.

Abu Dhabi: Labourers working at a construction site here yesterday continued with their protest and refused to resume work, demanding release of their three-month salaries....A senior official at the contracting company said November salaries were released long ago but many workers refused to accept it without December salaries.

He said: "The November salary is ready and the December salary will be released by February 15. For January salary, we are waiting for account details and data from our various sites. We have more than 10,000 workers working on sites from Sila'a to Fujairah. That is why there is delay."

He also said 90 per cent of the workers have already received their Nov-ember salaries.

Dubai: Some 130 Chinese workers have been camping on the street at the Ministry of Labour in Dubai since Sunday morning after rejecting a settlement suggested by senior officials.

It is the fourth protest in a week by workers of the Dubai-based company, Beijing Uni-Construction Group Company (BUCC).

Most of the protesting workers have been in the country for less than a year and claim that the company has not met the conditions stated in the contract...."The workers' claims are illegitimate, especially since the company management agreed to pay them Dh230 per month for a year as a sort of compensation for the money they paid back home," said Bin Sulooum [Head of the Investigation Unit at the Ministry of Labour and member of the Permanent Committee for Labour Affairs in Dubai]...."The final agreement is fair," Gao Youzhen, Chinese Consul-General, told Gulf News. "The Chinese workers should abide by the country's laws and traditions."

Ironically law and tradition do not coincide on this occasion. The law in the UAE is that firms are responsible for paying recruiters, not the workers. Tradition is that firms don't pay and the workers do. And the economics? Economics says it doesn't matter who is made responsible for paying such fees -- the outcome will equivalent either way.

I'm for the workers. If the law says the firms pay, then they should be able to have the law enforced. More generally, a country that allows some laws to be routinely ignored risks losing the public's respect of all laws.

Ouch

"Polluters should pay tariffs. It is my strong recommendation that costs of water and electricity be increased. Electricity paid by residents here could never actually cover the costs of running an electricity plant," said Grob.

"Water is running out because it is being given away for free. Taxes should be introduced. The polluters pay principle might work but you need laws, rules and to work with the government."

Brn is on a roll

Urine :: Markets in everything

Urine tests are given to test whether you are a drug user. That's resulted in a variety market responses. Church-going folks get together and sell their drug-free urine to drug users looking for jobs with that test employees for drugs. The Whizzanator is invented and marketed.

But here's the latest. You can extract meth from the urine of users. As you crack down on the manufacture of meth you encourage an increase in this sort of recycling. Here's the news report. Here's what farkers are commenting.

Economists think about everything

Not getting much currency

A penny is 1/100th of a dollar. A dollar isn't what it used to be. It costs more now to make the penny than it's worth. Many economists have suggested it's time to ban the penny, but there is great affection for the penny (for one thing, it's got Lincoln's face on it). But there's no real need to make transaction so finely priced. What to do?

As Mr. Velde explained in an interview, “We face a very medieval problem so I took inspiration from the medieval practice of rebasing.”

He would rebase the penny by having the government declare it to be worth 5 cents.At first that sounds impossible. But our coins are just tokens the government gives a value to. We can say they are worth whatever we like. Indeed, Mr. Velde observes that the United States did something similar in 1834, when it changed the gold-silver ratio and suddenly the half-eagle $5 coin was actually worth $5.625.

Pennies would then cost a little over 1 cent to make and would be worth a nickel, so the government would again be making a profit on money. We would have plenty of new Lincoln nickels so we could stop minting our current nickels at a heavy loss. The Jefferson nickels would stay in circulation, just as the old wheat pennies do now. Because metal in nickels is valuable, though, they would probably be melted down.

In the UAE the problem we face is that there are not enough small bills in circulation. Crisp 100 dirham bills spat from ATM machines are common (a dirham = US$3.68) but it's sometimes difficult to make smaller transactions for lack of small bills. Usually one party eventually blinks and comes up with the small bills to make it happen.

Banks charge businesses 1 percent for small bills, and ration small bills to other customers.

MoE raises bar, fewer students pass

It is admirable that the Ministry of Education is setting higher standards for graduation. It is not surprising, though, that when you raise the bar the students educated under the old system do not make the grade. They've not been exposed to the content or the culture of the new expectations. That takes time.

It's good sign that universities are raising their standards, pulling along public (government) education at the secondary and primary level.

Dr Abdullah Al Kamali, First Instructor at the Ministry of Education, said that the new system does not only evaluate pupils on their performance in exams but also includes course work, which counts for 50 per cent of their total average.

"The current system is set because universities in the country have raised their entry level standards," he said.

Many students are asked to join foundation courses before going into their first undergraduate year, he said while pointing to the growing number of students entering universities without possessing basic skills.

He acknowledged that the new system should have been implemented gradually since students are unfamiliar with research and report writing techniques.

Venezuela. Chavez and Oil :: The Economist

It has been Mr Chávez's extraordinary good fortune that the price of oil increased more than sixfold since he took office in 1999 to its peak last year. That has allowed him to ramp up public spending. With private investors scared off by controls and Mr Chávez's socialist talk, it is this spending binge that helped the economy recover after an opposition-led two-month general strike in 2002-03 and has since fuelled rapid economic growth....

Venezuelan crude, much of which is heavy and sulphurous, sells for about $10 less than lighter benchmark crudes such as Brent and West Texas Intermediate. Last year the average price for the Venezuelan “basket” of crudes was $56 a barrel. Last month, that figure was about $46. Any further fall might start to constrain Mr Chávez's ability to spend freely at home and abroad.

The 2007 budget is conservatively based on an average price for the Venezuelan basket of $29. But it is also based on average oil production of around 3.4m barrels a day (b/d). Neither of these figures bears much relation to reality and nor does the budget itself. Independent analysts, including OPEC and the International Energy Agency, believe the true production figure to be around 2.5m b/d. To complicate matters further, some of the oil is sold at a discount as part of Mr Chávez's strategy to win influence abroad, and 100,000 b/d is more or less donated to Cuba.

In contrast, total government spending last year was a third higher than originally budgeted. That pattern is likely to be repeated this year. “Quasi-fiscal” or off-budget spending, involving the diversion of oil revenues and the central bank's reserves into funds directly controlled by the president, is large and increasing.

Mr Chávez has a large piggy-bank he can draw on. The forthcoming constitutional reform is likely to strip the central bank of its last vestiges of autonomy.

Friday, February 02, 2007

Lou Dobbs, scramble your jets! :: Washington Post

Remember Dubai Ports World, the outfit that almost took control of the nation's biggest ports until Dobbs and his army of xenophobes rescued us?

Well, that same Dubai Ports World, through its subsidiary Istithmar Hotels, has purchased the venerable Hotel Washington, which from its location on 15th Street across from the Treasury offers the best views anywhere of the South Lawn of the White House and the second-floor residence.

I'll leave it to others to determine whether this transaction poses any threat to national security. My concern is whether this and other recent transactions are the harbingers of another bubble in U.S. asset markets, this one involving downtown hotels in major American cities....The $150 million price for the Hotel Washington works out to about $435,000 per room. But to turn what is now a down-at-heel property into the five-star hotel that Istithmar (that's Arabic for "investment") envisions, and deal with the demands of historic preservation fanatics and myriad local planning agencies, Istithmar will be lucky to bring this baby in below $800,000 a room. As it happens, that's the local indoor record, set last year when Strategic Hotel Capital, a private investment firm, purchased Washington's only five-star hotel, the Four Seasons in Georgetown, following a top-to-bottom renovation.

Thanks to Scott of Hybla for the link.

The Emirates Economist has had much to say on the ports saga in the past. Click the "Dubai Port World" label below for a selection.

The demand for palm oil in Europe has soared in the last two decades, first for use in food and cosmetics, and more recently for fuel. This versatile and cheap oil is used in about 10 percent of supermarket products, from chocolate to toothpaste, accounting for 21 percent of the global market for edible oils.

Palm oil produces the most energy of all vegetable oils for each unit of volume when burned. In much of Europe it is used as a substitute for diesel fuel, though in the Netherlands, the government has encouraged its use for electricity.

Supported by hundreds of millions of euros in national subsidies, the Netherlands rapidly became the leading importer of palm oil in Europe, taking in 1.7 million tons last year, nearly double the previous year.

The increasing demand has created damage far away. Friends of the Earth estimates that 87 percent of the deforestation in Malaysia from 1985 to 2000 was caused by new palm oil plantations. In Indonesia, the amount of land devoted to palm oil has increased 118 percent in the last eight years.

In December, scientists from Wetlands International released their calculations about the global emissions caused by palm farming on peatland.

Peat is an organic sponge that stores huge amounts of carbon, helping balance global emissions. Peatland is 90 percent water. But when it is drained, the Wetlands International scientists say, the stored carbon gases are released into the atmosphere.

To makes matters worse, once dried, peatland is often burned to clear ground for plantations. The Dutch study estimated that the draining of peatland in Indonesia releases 660 million ton of carbon a year into the atmosphere and that fires contributed 1.5 billion tons annually.

The total is equivalent to 8 percent of all global emissions caused annually by burning fossil fuels, the researchers said. “These emissions generated by peat drainage in Indonesia were not counted before,” said Mr. Kaat. “It was a totally ignored problem.” For the moment Wetlands is backing the certification system for palm oil imports.

But some environmental groups say palm oil cannot be produced sustainably at reasonable prices. They say palm oil is now cheap because of poor environmental practices and labor abuses.

“Yes, there have been bad examples in the palm oil industry,” said Arjen Brinkman, a company official at Biox, a young company that plans to build three palm oil electrical plants in Holland, using oil from palms grown on its own plantations in a manner that it says is responsible.

“But it is now clear,” he said, “that to serve Europe’s markets for biofuel and bioenergy, you will have to prove that you produce it sustainably — that you are producing less, not more CO2.”